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The stock market, which reeled under pressure of multiple negative factors in the recent past (April-6th to the 16th), saw the Sensex close at 3,183.77, down by over 10 per cent from the previous week's closing of 3,576. The slowdown in growth rate projected by Infosys accentuated the decline in technology stocks. Since the weightage assigned to the stock in the index is also high, a sharp decline in the prices of Infosys and other new-economy stocks had a cascading effect on the market. However the true culprit in the whole peg down was a weak trend in Reliance Industries which added to the overall market weakness.

Since April 6th, 2001, the BSE 30 sensitive index shed 392 points, of which 125 points or 32% can be attributed to the drop in the price of old economy titan - Reliance. With a weightage of 13.52%, in the sensex, Reliance, is the second largest stock after HLL in the bench mark index. As compared to this Infosys and Satyam have weightages of 8.18% and 2.05% respectively. So, any drop in the market cap of Reliance has more of an impact on the sensex than a drop in the market cap of Infosys which has contributed to a loss of 106 points in the sensex in the same period. HLL, the true blue, has today a weigthage of 20.09%.

The Reliance stock dropped by Rs 86, or 22.58% from the close of April 6th, at Rs 382 to Rs 295 on April 12th. And its weightage dropped from 15.54% on April 6th, to 13.55% on April 12th. But what led to this downfall is really not known. The Reliance petrochemical business is doing fine, there is no adverse news related to the company in the public domain. The only new news filtering in, has been of Reliance Telecom - a wholly owned subsidiary, bagging licences for 18 circles. Here the controversy is whether the players will get permission for offering limited mobile services in their respective regions or not. But this again is too small a reason for such a huge erosion in value. The trading volumes have also doubled in the scrip. Technically also the scrip looks like it is headed southwards.

So, what is the real reason behind this erosion in value? Could it be an indirect KP effect or something of that sort? There is some more recent news wherein the Bahujan Samaj Party (BSP) has alleged that funds to the tune of over Rs 1500 crore raised by Reliance Petroleum Ltd (RPL) through a public offer were diverted to stock markets by promoters and privately held Ambani family companies for personal benefits. Perhaps this news was in the offing and so the scrip has been spiralling downwards.

Also Jardine Fleming, a leading FII, had made a 'Sell' recommendation on Reliance Industries on April 10th. This was a sell into Strength recommendation, which advised the investors to take advantage of a possible technical rebound to book profit in the scrip. However, something seems to be brewing on this counter and investors are advised to steer clear and not enter the scrip till the news filters in.

The nearest support level for the Sensex is at 3,050, followed by the next one at 2,700. Investors can contemplate entry into the scrip in the 3,050-2,700 range.

Aru Srivastava

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